Marketing: Be Prepared for Economic Cycles - dummies

Marketing: Be Prepared for Economic Cycles

By Alexander Hiam

When preparing your business’s situation analysis, you need to be in close contact with the pulse of the economy. Watch the leading published economic indicators and regularly monitor the numbers. If you notice a decline for more than two months in a row, look closely for any signs of sales slowdowns in your own industry and be prepared to take action.

Try to avoid being lulled into a false sense of security. Because the economy in the United States (and many other countries) grew at a fairly steady rate for most of the 1990s, the majority of marketers forgot to keep an eye on the economic weather. When economic growth suddenly began to slow in December 2007, those same marketers faced major problems.

Now most markets face slow but steady growth but with important exceptions. The rust belt is still by and large in recession and not a great place to grow your sales, but web-based businesses; green, local, and sustainable businesses; and businesses in any of the Milken Institute’s Best Performing Cities annual list may enjoy the economic and social success of their city.

The Conference Board, a nonprofit in New York City, compiles an index of leading economic indicators that has successfully predicted the last half dozen recessions. However, it has also predicted five recessions that didn’t occur, so if you slavishly cut back every time the economists publish negative forecasts, your marketing plans will be too gun-shy and conservative.

You have to take some risk to grow, but if you watch the economic weather closely, you can scale back sooner than most marketers when it becomes obvious that economic growth is slowing.

When your own sales are weak and economic forecasts are poor, assume the worst and cut back aggressively to weather the coming storm. To do so, try the following:

  • Avoid large marketing commitments. Expensive and/or long-term contracts for advertising, store rentals, and large inventories are dangerous in down times. For example, don’t purchase a full year of expensive advertising. Instead, buy month to month, even though doing so may cost you a bit more. The flexibility is well worth a slightly lower discount.

  • Keep an eye on your mix of fixed and variable costs. A fixed cost is one that doesn’t change with sales. For example, if you have a long-term lease on an office or warehouse, you must pay the costs of that facility no matter if your sales are up or down.

    Variable costs are costs that can fluctuate, such as the cost of goods sold and commissions. A marketing plan with a lot of variable costs is relatively recession-proof because your costs will go down proportionately to sales.